BGC Partners: An Appealing Speculative Play

BGC Partners Inc. (BGCP), formerly eSpeed, Inc., is a global inter-dealer broker specializing in the brokering of a range of financial products globally, including fixed income securities, interest rate swaps, foreign exchange, equity derivatives, credit derivatives, commodities, futures, structured products and other instruments. The Company provides a range of services, including execution, clearing, processing and other back office services. Through its eSpeed and BGCantor Market Data brands, it also offers financial technology solutions and market data and analytics related to select financial instruments and markets.

On April 1, 2008, The Company completed the merger of BGC Partners OldCo and eSpeed, which combined BGC Partners OldCo's, voice brokerage business and Market Data solutions with eSpeed's electronic marketplaces and trading technology expertise.

Often when shares decline to prices below $3 it is a sign of severe problems. Usually a yield that is way above market rates is a 'red flag' that should send you running the other way. Sometimes it is an opportunity to make huge gains.

I've taken a small nibble of BGC Partners despite the known risks. As noted above in the company description (provided by MSN MoneyCentral), BGCP is the result of the April 2008 merger of eSpeed and OldCo. The company has been posting nice profits this year. It earned $0.21, $0.17 and $0.08 in the first three quarters of 2008 (excluding a $0.46 one-time charge from pre-merger redemption of partnership units). Full year estimates of continuing operations are now at $0.62 and $0.49 - $0.51 for 2008 and 2009 respectively.

The company has stated their intention to pay roughly 75% of its after-tax distributable earnings in the form of dividends. They actually paid $0.13 in Q3 and $0.10 in Q4 so far. Based on the approximately $0.50 EPS estimate for next year it appears that the current 10 cent a share quarterly payout can be continued.

On shares now trading at $2.44 that's a 16.39% current yield.

BGCP has been actively retiring shares. Between September 9 and September 22, 2008, it retired a total of 3,163,072 shares at an average price of $4.82 - well above today's quote. As of September 30, it had $43 million remaining from its original $100 million repurchase authorization.

At quarter's end, BGCP had cash and equivalents of $361.5 million with total long-term debt of $150 million. Year-end book value should come in around $3.24/share.

There was a small open-market insider buy on December 11th and no recent insider sells.

With the shares trading below book value, under 5 times expected earnings and yielding in the double digits, I'm willing to take a small bet on a potentially big percentage gain.

This small-cap stock is covered in the standard edition of Value Line and offers option trading. Those are attributes not typically associated with such a low-priced issue. If this company can regain its stature, who knows where the shares might go?

As noted in the 52-week range, BGCP shares hit a 2008 high of $12.97 leaving room for a nice move on even a partial recovery to its price of only eight months ago.

Disclosure: Author owns shares of BGCP.

Comments

[Paul Price:]

A further note on BGCP: As of the last proxy statement [February 2008] officers and directors owned about 67.4% of the stock making them quite motivated to seek growth in shareholder value.

2008 Dec 31 07:54 AM

[Paul Price:]

BGCP shares were up > 13% in Dec. 31st trading.

Jan 01 06:29 AM

[Regular Joe...:]

So what are the risks with this stock?

Jan 02 02:38 AM

[Regular Joe...:]

Paul, can you expand on your BGCP article. Maybe even do another article. I'm interested in learning as much as possible about BGCP. This stock intrigues me. Thanks.

Jan 02 02:47 AM

[Paul Price:]

Joe,

Here was information from last June on the secondary offering they sold.
Investor then were paying $8.00/share- way above my recent price.

June 06, 2008
BGC Partners Prices Secondary (BGCP)
BGC Partners, Inc. (NASDAQ: BGCP) priced its public secondary offering of 820 million shares at $8.00 per share.

According to the company, 10,000,000 of these are primary shares, 3,926,178 of which are secondary shares being sold by Cantor Fitzgerald, L.P., and 6,073,822 of which are secondary shares being sold by limited partners of Cantor Fitzgerald, L.P., and founding partners of BGC Holdings, L.P.

Joint book-running managers are listed as Deutsche Bank and Cantor Fitzgerald; co-lead managers are Wachovia Securities and BMO Capital Markets; and co-managers are Keefe Bruyette & Woods and CastleOak Securities. The underwriters were granted an option to purchase up to 3,000,000 additional shares for 30 days after offering.

Its market cap was listed as $589 million. This is a 1% discount to yesterday's $8.08 close and down from $9.00 just 5 days ago. Its 52-week trading range is $7.02 to $12.97.

Jan 02 06:48 AM

[Paul Price:]

The Dividend Daily

New Dividend Stock Coverage (BGCP)
By Dividend.com Staff
December 16th, 2008

We are adding the following stock to our dividend-paying stocks database.

BGC Partners (BGCP) - This company engages in developing and deploying electronic marketplaces and related trading technology that enables market participants to trade financial and non-financial products. It operates multiple buyer and seller electronic marketplaces for the capital markets, including government bond markets, foreign exchange markets, and other financial marketplaces, which are accessed through electronic transactions for some products or through an integrated voice-assisted network accessed by voice-brokers. The company was founded in 1999 and is headquartered in New York, New York.

Jan 02 06:54 AM

[Individual ...:]

The company is led by Howard Lutnick. Has a great dividend. Profitable. Has a 25% interest in the new launch of ELX Futures, LLC, which is close to getting regulatory approval so will launch any time. BGCP has between 210-220 million shares outstanding and the information found on most finance sites are not correct. So the market cap is actually around 500 million. The company has cash and cash equivalents of $361.5 million with total long-term debt of $150 million. So the company is trading for 300 million and the company is going to net around 107 million this year. How can this be you ask? Most of the stock holders are the traders of the company, and they don't care what the stock trades at right now since they cannot sell their shares at this time. So, they are enjoying a hefty dividend beyond belief while the rest of the market is confused as to what this company is doing. I feel like the company is keeping the rest of wall street in the dark so that they can keep the high dividend yield for themselves. Please investigate this company. It may well be one of the little known secrets in the stock market. I own shares of BGCP

Feb 06 07:19 PM

[Individual ...:]

Revision in order to make the comments more clear. The company is led by Howard Lutnick. Has a great dividend. Profitable. Has a 25% interest in the new launch of ELX Futures, LLC, which is close to getting regulatory approval so will launch any time. BGCP has between 210-220 million shares outstanding and the information found on most finance sites are not correct. So the market cap is actually around 500 million. The company has cash and cash equivalents of about $361.5 million with total long-term debt of $150 million. So the company is trading at a 300 million market capitalization and the company is going to net around 107 million this year. How can this be you ask? Most of the stock holders are insiders of the company, and they don't care what the stock trades at right now since they cannot sell their shares at this time. So the inside shareholders are enjoying a hefty dividend beyond belief while the rest of the market is confused as to what this company is doing. I feel like the company is keeping the rest of wall street in the dark so that they can keep the high dividend yield for themselves. Please investigate this company. It may well be one of the little known secrets in the stock market. I own shares of BGCP.

Feb 06 07:22 PM

[U Dontknow ...:]

BGCP hit $4 in pre-market trading today.

nice pick, thanks.

Jul 10 08:24 AM